US Dollar Still Vulnerable to Durable Goods

The US dollar, having benefited from the Federal Reserve’s latest round of policy negotiations, will be at the mercy of several market-moving events next week, headlined by volatile durable goods orders.

New orders for US durable declined 1 percent in January, as factory activity showed signs of stabilizing after a winter cooldown. Orders for manufactured goods meant to last three years or more plunged 5.3 percent in December, according to official data. Market sentiment favours a strong rebound in the durable goods component of the US economy, with estimates showing new orders rose 1 percent in February.

Durable goods orders was one of the many variables weighing on the US dollar last month. Weaker than forecast data sent the dollar index to four-and-a-half month lows ahead of the March 18-9 Federal Open Market Committee policy meetings. Heading into next week, durable goods orders could play a key role in how the markets perceive US recovery.

Economists expect milder weather to help lift the US economy from its winter freeze. Inclement weather has disrupted the pace of factory production, home sales and consumer spending. In an official press release this week, the FOMC acknowledged that severe weather was partly to blame for the disruption in economic activity this winter.

Bad weather aside, the Federal Reserve signalled its confidence in US recovery this week by voting to pare asset purchasing by another $10 billion. While many do not believe Janet Yellen intended to signal a rate hike as early as Q2 2015, rate-hike expectations could continue to firm-up support for the greenback. Traders’ reaction to market-moving events, chief among them being durable goods orders, could signal how much stock they place in Yellen’s latest comments.

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